Mumbai:Car sales in India, Asia’s third biggest automobile market, grew at a slower pace in April as interest rate increases and higher vehicle prices deterred many from making new purchases, monthly sales data released by the manufacturers showed.
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Maruti Suzuki India Ltd, the nation’s largest car maker, sold 87,144 units in April, an increase of 8% from the year earlier. That compares with the 23% increase in April 2010 over 2009. Hyundai Motor India Ltd, the second largest, increased sales by 11% to 31,636 units, compared with 28% in April 2010 over 2009.
Around 70% of the car purchases in India are financed through borrowings from lenders, making car sales sensitive to increase in lending rates. India’s central bank has increased interest rates eight times since March 2010 to contain rising prices.
“The rising interest rates have led to reduced enquiries and the conversion rate, too, has slowed down,” Arvind Saxena, director of marketing and sales at Hyundai, said in a statement. “We expect the same trend to continue in the coming months.”
While interest rates at private sector banks have increased to 13.25% from 12% in October, public sector banks like State Bank of India, have increased rate of interest to 10.75% in April from 9.2% in October, according to Shashank Srivastava, chief general manager of marketing at Maruti.
Buyers have also been put off by the higher rate of interests on home loan rates as it adversely impacts the purchasing power of an individual, Shrivastav said.
Automakers raised prices by as much as 2% in April because of an increase in price of raw materials such as steel, aluminium, rubber and copper. Maruti increased prices of its vehicles by 1-1.5%.
Maruti reduced discounts offered on select models, which resulted in a slow demand in the first half of the month, Mitul Shah, an analyst at brokerage First Global India Research, wrote in a 30 April note to clients.
Passenger car sales at Tata Motors Ltd rose marginally by 1% to 23,387 units from a year earlier. Sales of Nano almost tripled to 10,000 units from the year earlier, the fifth straight month of gains for the model.
Sales at utility vehicle maker Mahindra and Mahindra Ltd rose 21% to 30,349 units.
Umesh Karne, analyst at brokerage Bric Securities India Ltd, however, expects the pace of sales to increase from the current month with the marriage season kicking in in the northern part of the country.
As some consumers have advanced purchasing decisions to March to get year-end depreciation benefits, the first quarter of the fiscal is usually muted compared with the rest, Karne said. Though the underlying demand will continue to be strong, the growth rate will slow down to 12-13%.
Newer models helped Ford India Pvt. Ltd, Volkswagen Group Sales India Pvt. Ltd, and Toyota Kirloskar Motor Pvt. Ltd among others to boost sales.
Two-wheeler sales, which are relatively less sensitive to price hikes and interest rates as fewer people opt for borrowings to fund their purchases, continued to increase at a fast pace.
Market leader Hero Honda Motors Ltd sold a record 517,000 units, followed by Bajaj Auto Ltd and TVS Motor Co. Ltd, which sold 322,000 (including exports) and 114,100 (domestic) units, respectively.